Small Internet providers seek relief on pricing model

The country’s independent Internet providers are planning to ask federal regulators Friday to strike down a recent ruling that, if fully implemented, will see costly tariffs imposed by big network owners such as BCE Inc

The country’s independent Internet providers are planning to ask federal regulators Friday to strike down a recent ruling that, if fully implemented, will see costly tariffs imposed by big network owners such as BCE Inc.

Though the group holds a fraction of the Internet market, it represents an important competitive check on major retail providers like BCE and Rogers Communications Inc. But in a forthcoming appeal to the Canadian Radio-television Telecommunications Commission, sources say the smaller group will contend it will be significantly weakened by the new pricing model, which was approved by regulators last fall.

The “review and vary” request will argue the new scheme unnecessarily inflates the amount independent providers must pay big network owners for access, while the rates arrived at by regulators demand more scrutiny.

Last November, the CRTC approved a new “capacity-based approach” for BCE’s Bell Canada, Rogers and other network owners to use when charging independent ISPs for network access. The smaller companies, which lease then resell access to customers, had previously paid a flat rate.

Citing higher costs and traffic on its network, Bell has been seeking to end flat-rate access for some time. In submissions, Bell, Rogers and others disclosed costs per megabyte to justify the new approach, which will (and already has) seen prices rise among smaller competitors.

While the smaller ISPs have conceded to the “capacity” principle, the group, collectively known under the banner of the Canadian Network Operators Consortium (CNOC), says the pricing is excessive and threatens their business model. Moreover, the costing data given over to the CRTC is grossly exaggerated in many instances, evidenced by wildly varying rates asked for by some network owners.

“The crux of it as we see it, is the numbers that were submitted may be artificially inflated and that they don’t necessarily reflect the true cost,” said George Burger, a spokesperson for Chatham, Ont.-based TekSavvy Solutions Inc., which serves about 100,000 customers.

He pointed to a promotion from Bell shortly after the CRTC decision on Nov. 15 offering sharply discounted Internet service — an attempt he said to leverage news of the impending wholesale rate hike to squeeze market share. The rate offered by Bell suggested the underlying costs were lower than what it filed, he said.

“They couldn’t be offering this without taking a huge, huge hit. So we’re very skeptical,” he said.

Still, some infrastructure owners, including Rogers, Shaw Communications Inc. and Quebecor cable subsidiary Videotron Ltee. have requested even higher tariffs than what was approved of by the commission.

Ken Engelhart, senior vice-president of regulatory affairs for Rogers, said the company’s request is largely to recover costs the CRTC “mistakenly” stripped out of its wholesale rate. The executive said Rogers was “puzzled” by the disparity between its rates and those at other cable companies.

Normally, “rates would be within a dollar or so of each other, which kind of makes sense,” he said. “We have very similar networks, very similar customers and we operate in very similar territories.”

Given the falling costs of equipment and network efficiency gains in recent years, arguments justifying higher tariffs because of higher investment requirements warrant further questioning, Lawrence Surtees, analyst at IDC Canada said.

“There is a cost put in to improving the network, but the price per unit per customer per month should fall,” he said. “They’re recovering their costs every month on your bill.”

The analyst said the Gatineau, Que-based regulator should move toward opening up the information provided to it by the infrastructure owners to third-party scrutiny.

“They’re saying it is becoming more expensive, and I’m saying prove it,” he said.